HUL Q3 preview: Performance of Lever Ayush, oral care, WIMI to be in focus

Hindustan Unilever will report its December-quarter earnings on Thursday, January 17. The quarterly results will be watched out for comments on volume growth and the consumer demand environment

The country's largest consumer goods company, Hindustan Unilever (HUL) is scheduled to report its December- quarter earnings on Thursday, January 17. This would be the first quarterly result for the company since its merger deal with GlaxoSmithKline (GSK) Consumer Health. The result will be watched for comments on volume growth and the consumer demand environment.

HUL had posted a 20 per cent rise in its consolidated net profit to Rs 1,525 crore for the September quarter. Its sales had grown by 11 per cent during the period, while its earnings before interest, tax, depreciation and amortisation (Ebitda) had been Rs 2,019 crore, up 20 per cent year-on-year (YoY). Ebitda margin had risen by 160 basis points (bps) over the year-ago period.

The company had said its well-established savings programme and leverage in other expenses had helped it mitigate material inflation and drive margin improvement.

In the first week of December, Unilever had announced the merger of HUL with GSK Consumer Health in an all-stock deal.

Here is what top brokerages expect from HUL's December-quarter result on Thursday.

Edelweiss Securities 
 

We anticipate revenue, Ebitda and PAT to grow nearly 9 per cent, 18 per cent and 4 per cent, respectively, on a year-on-year basis. HUL is expected to record nearly 6-7 per cent YoY volume growth on a high base of 11 per cent YoY growth (Q2FY19 saw volume growth of 10 per cent on a base of 4 per cent). So three years’ average volume growth trajectory of earlier quarters is likely to be maintained. We expect rural demand to grow at 1.2x of urban, but no acceleration from previous quarter. Performance of Lever Ayush and oral care will be monitorable. Effective PAT is subdued owing to tax rate of 30 per cent for the quarter compared to nearly 21 per cent in the base quarter. 

ICICIdirect
 

Sales growth is expected to grow 11.6 per cent YoY mainly led by volume growth of 8 per cent on account of volume growth across categories. This apart, improved rural demand in addition to price hikes taken in detergents and skin care categories during Q2FY19 will also support revenue. The company should witness operating margin expansion of 208 bps to 21.6 per cent in spite of higher raw material costs, benefiting from a focus on premiumisation, cost-cutting and market share gains. Net profit is expected to grow 12.1 per cent YoY to Rs 1,487 cr. Also, a decline in sugar and cocoa prices is likely to benefit HUL.

Motilal Oswal Financial Services
 

We expect Hindustan Unilever’s revenue to grow 10 per cent YoY, with underlying domestic volume growth of 6 per cent in 3QFY19. Base quarter volumes were high at 11 per cent. Prices of key raw material used in soap making industries and in production of distilled fatty acids palm fatty acid distillate (PFAD) are down 32.3 per cent YoY (down 19.3 per cent QoQ) and that of linear alkyl benzene (LAB) which is used as a surfactant in detergents and cleaning products, are up 16.1 per cent YoY (up 4.7 per cent QoQ). The gross margins are likely to expand 40bp YoY to 54.9 per cent. 

We expect operating margin to expand by 150bp YoY to 21.1 per cent in 3QFY19, leading to EBITDA growth of 18.4 per cent YoY. The adjusted PAT is likely to grow 17.8 per cent YoY to Rs 1,410 cr.

Key monitorables to watch out for include comments on volume growth, consumer demand environment, the pace of rural recovery, performance of Lever Ayush and Winning in Many Indias (WIMI) growth. 

Sharekhan
 

The brokerage believes HUL’s growth prospects would improve with the recent acquisition of GSK Consumer in view to enhance its presence in the health food drink (HFD) category. 

For December quarter, the brokerage expects the revenue growth of nearly 12 per cent which will largely be driven by 7-9 per cent volume growth. Palm oil prices are down by nearly 14 per cent, which would help the operating margin to improve by 92 bps YoY to 20.5 per cent.  Operating profit to grow by 17 per cent YoY and the adjusted PAT to grow by 17.1 per cent YoY.